9 tips for dealing with a low appraisal
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You found the perfect home, you signed a contract, and your inspection went well. Now, all that’s left to do is wait for the results of the appraisal.
But what happens if the appraised value is lower than the agreed-upon price? You have options. Here are nine tips for coping with a low appraisal.
Why do low appraisals occur?
Low appraisals aren’t necessarily influenced by the temperature of the market. There are a few reasons why they happen.
- Inexperienced appraiser: This isn’t common, but it does happen. Lack of experience in a particular market can lead to a low appraised value.
- An overpriced home: The appraiser might be right, and the price of the home could be off the mark. This occurs most often when sellers value their home more than the market.
- Declining market value: The market value of a home can decline if there are a number of foreclosures in the area.
- Missed data: An appraisal that does not take into account all sales data and other relevant numbers can lead to a lower value.
Why low appraisals matter
A low appraisal can trigger a contingency that allows you or the seller to back out of the contract.
Additionally, lenders typically only lend buyers the appraised amount, so it’s possible that financing may fall through.
Some buyers may be able to pay the difference with additional sources of homebuying cash, but others will need to seek new financing.
9 tips for dealing with a low appraisal
Tip 1: Get more details
Ask your lender for specific details about why the appraisal was low. The final number on a home appraisal is determined by many factors, including:
- The location of the home
- The lot size
- The square footage
- The number of bedrooms and bathrooms
- The home’s age
- The home’s curb appeal
- Upgrades to major systems and appliances
- The condition of the home and its major systems
Tip 2: Negotiate with the seller
If the seller is willing to lower the price to the appraised value, then the buyer secures financing, and everyone is satisfied. This is a great option if the home has been on the market for a while and the seller is ready to make a deal.
Tip 3: Get a second opinion
It’s good to get a second opinion. This is especially important if your home appraisal was conducted outside the home. During the COVID-19 pandemic, many sellers opted out of in-home appraisals. If that’s the case, request a second appraisal that occurs inside the house.
Request a more seasoned appraiser or hire another company for the second appraisal if you think the first was inexperienced or missed critical sales data.
A bank or buyer can request a second appraisal, but sellers typically aren’t allowed that opportunity. However, a seller can encourage a second opinion by offering to split the cost of the second appraisal.
Tip 4: Add cash to the deal
Offer to pay the difference between the price of the home and the appraised value in cash. If the purchase price was $100,000 and the appraisal came in at $75,000, adding $25,000 in cash at closing could prevent the financing from falling through. But this option only works if you have that much cash readily on hand.
Tip 5: Split the difference
If the seller won’t come down to the appraised value and you don’t have enough cash to pay the difference, it’s possible to split the amount. In the example above, the difference between the appraisal and the asking price was $25,000. If you can offer an additional $12,500 and the seller agrees to reduce the price by the same amount, you can still get financing.
Tip 6: Check pending sales
Ask your Realtor to call other local agents and ask for details on pending sales. This gives a more accurate picture of home sale prices in the area.
Tip 7: Appeal the appraisal
An appeal isn’t a request for a second appraisal — just a closer look at the first one. It’s possible to challenge the appraisal and win. Provide comparable sales data in the area, as well as current home prices and trends in your local market.
Tip 8: Consider if it’s discrimination
Studies from the Brookings Institute found that homes in predominantly Black neighborhoods received appraisals that were 23% less than in other areas of the city. This was true for homes of similar square footage, with similar features, and in similar condition.
If you think your appraisal is prejudicial:
- Submit a complaint to the Department of Housing and Urban Development’s Fair Housing and Equal Opportunity office.
- Contact the Appraisal Subcommittee Appraisal Complaint National Hotline to submit a complaint.
- Submit a complaint to the Consumer Financial Protection Bureau.
Tip 9: Cancel the transaction
You’ll likely have a contingency in your contract that states your offer is dependent upon the appraised value. If you cannot find another way around the low appraisal, it’s time to cancel the transaction and keep looking.
When to eliminate the appraisal contingency
In some cases, sellers might ask buyers to waive an appraisal contingency in their contract. This is an unusual request, but there are a few reasons it might occur.
- There are multiple cash offers, and a low appraisal would immediately eliminate you as a potential buyer.
- Federal Housing Administration and Veterans Affairs loans have stricter rules for appraisals, and a seller may know their home won’t make the cut — even if the price is fair.
Eliminating the appraisal contingency can backfire, so make sure it’s the best choice for you before you sign.
A Low Home Appraisal Is Not the End
A low home appraisal is not the end of the road in your home-buying journey. Explore your options with a qualified Realtor before you cancel your contract and keep looking.
Written by Ben Mizes. September 10, 2022
Ben Mizes is the Co-Founder and CEO of Clever Real Estate, the free online service that connects you with top Real Estate Agents who can help you save thousands on commission. Ben is also an active real estate investor with 22 units in St. Louis, and a licensed Real Estate Agent in the State of Missouri.
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Your opinion matters, leave a comment
Everything seems to fall on the fault of the person who made the appraisal of the property. So to begin with, you have to call people who are up to date and are good at their job.